The New York Times Is Dead: Long Live the New York Times

The iconic newspaper the New York Times (NYT), is facing an expiring credit line of $400 million dollars in May. To you and me, that's like your credit card companies, mortgage bank, and car loan companies all saying they want us to repay the full loans in the next three months. If that happened to us, we'd have three choices that are essentially the same choices that the New York Times has.

The first option would be to admit defeat and declare bankruptcy. For us, that means the banks take away everything we own. For the New York Times, that would mean closing up shop, selling off all its assets and calling it quits. Of course, someone might buy the name and continue using it, but it would be a whole new company. Shareholders would get nothing, creditors would get pennies on the dollar, and subscribers would have to find something else with which to line their bird cages.

The second option is to get a new loan from someone else. If we could get someone to refinance our house then we could pay off the first mortgage before the deadline and move on as we were. Of course, we might have to pay a higher interest rate and our payments might go up a little, but we would probably survive. Unless we were having trouble making the original payments in which case we'd just be prolonging the agony. The New York Times just found a new lender to loan it enough for the mortgage, but not the credit cards and the car loans. Carlos Slim, one of the richest men in the world, has agreed to loan the New York Times $250 million dollars. Of course, the Times will be paying 14% interest on that loan, for a tidy annual profit of $35 million dollars for good old Carlos. That's just the interest payment, by the way. After paying $35 million in interest, the Times will still owe its benefactor the entire $250 million.

Of course, that leaves the Times with another $150 million to cover the closing line of credit. The third option we would face is to sell the cars and the house and use the proceeds to pay off the loans. That would leave us with fewer assets, but hopefully in a debt-free and cash flow positive situation. The New York Times needs to sell some of its assets to make up the difference between the loan value and the existing credit line. Oddly enough, one of the assets of the New York based newspaper is a significant stake in the New York Yankees' arch rival, the Boston Red Sox. If you've ever wanted to own a baseball team, you can buy a minority stake in the BoSox from a motivated seller sometime later this year.

The New York Times also owns the building that houses its headquarters. It has announced that it would like to sell it and lease it back from whoever buys it. Imagine selling your house and telling the buyer you'd like to rent it back. Those rent payments would have to cover the new buyers' costs and some profit as well. So it might give you some cash up front, but in the long run, it's probably not that good of a deal. If the bank is foreclosing, though, you do what you gotta do.

You see the main issue for the New York Times is that it is one of the best buggy whip makers left standing. Technology has passed it by. Newspapers have lost their relevance for mainstream America. Instead of reading this article in a daily column buried in the business section of a newspaper, you are reading it on the internet. Thank you for that, by the way. To complicate matters, the economy is in such a mess that most companies are reducing their advertising budgets, and that means even less income for newspapers.

So what's a poor paper to do? With the extra cash infusion they get from the sale of the assets, the NY Times must build itself into a strong web presence. It needs to make itself relevant to today's news audience, the audience that searches YouTube for clips of Obama's inaugural address, the audience that argues the relevance of that speech on the message boards beneath an online article. In other words, the New York Times needs to stop making buggy whips and start making electric cars. Good luck to the once and would-be future king.

Stock position: None.

Comments

[Gollum]

Why doesn't the Times place on its website only a portion of each article, with the remainer available for a price? Why give away for free that which is expensive to produce and is of value to the reader?

A counterargument is to keep it free in order to increase website traffic and thus website advertising revenue. However, website advertising rates appear to be too low for this to work

2009 Jan 22 06:59 AM